MAS chief: Global economy resilient but faces new risks
Monetary Authority of Singapore Managing Director Chia Der Jiun assessed the global economy's resilience to energy shocks and the AI boom. He also outlined Singapore's strategy to strengthen its financial center.
Resilience amid energy shocks and AI boom
The global economy has shown remarkable resilience in the face of a major regional military conflict and an unprecedented energy supply shock, estimated at over 10 million barrels per day.
Oil prices surged more than 40 percent above pre-war assumptions, and global headline CPI rose over 1 percentage point year-on-year in April.
Despite economists' concerns about stagflation, stock markets remain buoyant, with the S&P 500 reaching record highs and MSCI EM up 20 percent year-to-date.
Ten-year bond yields in major advanced economies increased by a moderate 50 basis points, reflecting expectations of higher inflation and tighter monetary policy.
The IMF's global growth forecast for this year was downgraded by only 0.2 percentage points to 3.1 percent, remaining within trend growth bands.
This resilience is partly attributed to the significant boost from the AI boom, which contributed most of US investment growth and half of US GDP growth, and fueled high export growth in Asia, particularly Taiwan and Korea.
Buffers tested, new uncertainties emerge
The initial resilience to the energy shock was supported by several factors: market expectations of a short conflict, increased swing production from the US, quick supply substitution, drawdowns on large stockpiles, and strategic reserve releases.
Demand moderation and refining intake cuts, alongside price caps and subsidies in some economies, also cushioned the impact.
However, these buffers are not indefinite.
Swing production is maximized, stockpiles will need replenishment, and subsidies impose high fiscal costs.
Three key uncertainties could derail this picture of resilience: the fragile situation in the Gulf and potential for prolonged Strait of Hormuz closures, the sustainability of the AI investment boom amid rising compute costs and potential market re-evaluation, and the risk of narrowly driven global growth where productivity gains are not widely distributed, leading to unbalanced growth.
A sharper, prolonged energy shock could lead to more severe second-round effects and inflationary dynamics.
A fragile equilibrium
The speech paints a picture of a global economy navigating complex, contradictory forces.
While current resilience is notable, the reliance on temporary buffers and the concentration of growth in AI sectors highlight underlying fragilities.
Policymakers face the delicate task of fostering innovation while building broad-based resilience against future shocks.